Estimated Income Statements, using Absorption and Variable Costing

Prior to the first month of operations ending July 31, 2014, Muzenski Industries Inc. estimated the following operating results:

The company is evaluating a proposal to manufacture 36,000 units instead of 28,800 units, thus creating an ending inventory of 7,200 units. Manufacturing the additional units will not change sales, unit variable factory overhead costs, total fixed factory overhead cost, or total selling and administrative expenses.

Prepare an estimated income statement, comparing operating results if 28,800 and 36,000 units are manufactured in the variable costing format.

Sales (28,800 x $75) Manufacturing costs (28,800 units) Direct materials Direct labor Variable factory overhead Fixed factory overhead Fixed selling and administrative expenses Variable selling and administrative expenses $2,160,000 1,324,800 316,800 144,000 216,000 29,400 35,500